Both Bond Huell and Bond Kuby have 7 percent coupons, make semiannual payments,

Question

Both Bond Huell and Bond Kuby have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Huell has five years to maturity, whereas Bond Kuby has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Huell and Bond Kuby? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places, (e.g., 32.16)) Percentage change in price of Bond Huell % Percentage change in price of Bond Kuby % If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Huell and Bond Kuby? (Round your answers to 2 decimal places, (e.g., 32.16)) Percentage change in price of Bond Huell % Percentage change in price of Bond Kuby %

Explanation / Answer

USE FINANCIAL CALCULATOR

Bond kuby

when interest rate increase by 2%

FV=1000

PMT=1000*3.5%=35

N=40

1/Y=4.5

PV=815.98

% Change = (815.98/1000)-1=18.40% decline

when interest rate decrease by 2%

FV=1000

PMT=1000*3.5%=35

N=40

1/Y=2.5

PV=1251

% Change = (1251/1000)-1=25.1% increase

USE FINANCIAL CALCULATOR

Bond Huel

when interest rate increase by 2%

FV=1000

PMT=1000*3.5%=35

N=10

1/Y=4.5

PV=920.87

% Change = (920.87/1000)-1=7.91% decline

when interest rate decrease by 2%

FV=1000

PMT=1000*3.5%=35

N=10

1/Y=2.5

PV=1087.5

% Change = (1087.5/1000)-1=8.75% increase

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.